The year 2017 was a bad year for named storms. Hurricanes Harvey, Irma and Maria caused widespread property damage and loss of life. While refineries and chemical plants were secured, pollution and contamination from agricultural and pool chemicals as well as fuels and lubricants could be seen far and wide.

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“Since the Murphy Oil release during Hurricane Katrina, heavy industrial facilities at risk have developed stronger preparedness and storm contingency plans,” said Marcel Ricciardelli, senior vice president of environmental, design, professional and surety, Allied World.

“A single major release can result in extensive damage.”

While no Murphy Oil-scaled events occurred, 2017 saw tank roof collapses, fires and explosions, air pollution releases, spills and waste site flooding. To add historical context, Hurricane Sandy, which hit in 2013, resulted in similar types of releases from flooded vehicles and underground/aboveground storage tanks.

“Major changes in building codes or government regulations would likely be needed to harden small businesses, commercial buildings, homes and vehicles,” said Ricciardelli. “The key question is whether the cost and effort would help to reduce releases significantly.”

He added, “I believe that it has been most effective to plan for worst-case scenarios, using preparation time to remove hazardous materials and to develop contingencies for critical services. Unfortunately, there is a lack of predictability with regard to weather intensity and flooding.”

Planning for Contaminants

Flooding is a broad peril with the ability to move pollution.

“Without the ability to prevent flooding, it is difficult to prevent possible contamination from flood waters,” said Ricciardelli. “Flood water can be contaminated from sewage overflows, waste sites, releases from mechanical systems, energy infrastructure and materials in the chain of commerce.”

Marcel Ricciardelli, senior vice president of environmental, design, professional and surety, Allied World

Given that reality, “property owners should understand that contingency plans should be developed to include assistance from emergency response firms and the possible use of environmental insurance as part of their risk management plan. An environmental insurance policy may provide coverage for the clean-up of pollution that migrates from off-site sources.”

Most substantial industrial facilities have management and emergency response plans in place that are required.

“You can debate the causes, but there is no debate on the effects. We are getting greater levels of severity in weather events.” — Robert Horkovich, managing partner, Anderson Kill

Unexpected conditions can lend themselves to toxic repercussions.

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“For example, in the case of the Arkema plant, the fire and environmental damages were the result of the loss of back-up generators,” Wingert noted. “The loss of power impacted the ability to cool the storage areas, and chemicals within these areas reacted at the higher temperatures.”

Speaking broadly, he added, “Conditions such as storm surge, flooding, winds are all perils that may exacerbate the release of toxic chemicals into the atmosphere causing third-party exposure, bodily injury, water-supply infiltration, air exposure and provoke the need for remediation.”

Continued disaster preparation becomes more important as climate change worsens.

“You can debate the causes, but there is no debate on the effects,” said Robert Horkovich, managing partner at the law firm of Anderson Kill. “We are getting greater levels of severity in weather events. Even in 2016, which was not a bad year for hurricanes, we saw batteries of dozens of hurricanes running through a state.”

As local officials increase their efforts and preparation, they are also looking at prevention. There has been some discussion of limiting reconstruction in flood zones, but it’s easier said than done.

“This is a complex question,” said Ricciardelli. “In many cases, individuals or companies can rebuild subject to zoning requirements or building codes. Building in a flood zone may come with increased building requirements and additional insurance costs.”

The combination of building codes and increased costs may prevent those with limited resources from rebuilding without government support.

Similarly, with new flood zones, consideration of revising drainage systems is taking place. Again, not so simple. Funding would be necessary to construct flood prevention and draining systems, and their effectiveness would be based on predictability.

“I believe that these types of systems would only be suitable for chronic flooding areas and can only handle situations within their design parameters,” said Ricciardelli.

“The damage from Hurricane Harvey, like Katrina, would likely not have been in anyone’s design parameters. The flooding from Harvey was caused, in part, by reservoir releases that were needed to prevent dam collapse.”

A Public Health Concern

One politically charged issue, long-tail health concerns, is not as much of a liability problem as it might seem; “Our environment has pollution from our industrialization,” said Ricciardelli.

“It is difficult to say whether the additional pollution released from a catastrophic weather event creates long-term effects beyond the chemicals and pollutants we add every day.”

He explained that “the air quality deteriorated after Harvey due to pollution from the industrial facilities in the Houston area. The air quality today is very similar to air quality prior to the storm. Consistent poor air quality is a public health issue. I believe it is unlikely the spike after a storm would result in a larger public health crisis in the long term.”

“It is difficult to say whether the additional pollution released from a catastrophic weather event creates long-term effects beyond the chemicals and pollutants we add every day.” —Marcel Ricciardelli, senior vice president of environmental, design, professional and surety, Allied World

A significant pollution event is easier to evaluate due to gross contamination within a finite area.

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“Gross contamination is more likely to cause a public health crisis,” Ricciardelli added, “which would be handled by removing individuals from the exposure and potentially making the affected area uninhabitable for an extended period.”

Horkovich stressed the importance of business interruption insurance: “I have had cases where a client was surrounded by a moat of flood waters. There was no damage to their facility, but they were unable to operate, because they could not get raw materials in or finished goods out.

“I have many clients that are chemical and oil companies,” Horkovich continued. “My advice to them is always do what you need to do to protect your facilities and your company. You can get insurance but also make it so that no one can fault your company or your management when bad things happen.” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

Ask the average citizen what they think about the future of U.S. manufacturing, and you’re likely to hear bleak projections of companies shipping their operations offshore, or robots displacing human workers. Overall, the industry’s public image is fading at the edges — people perceive waning relevance and opportunity.

“But if you ask manufacturers what they think, the response is the exact opposite. U.S. manufacturers are actually quite enthused about the future,” said Seth Hedrington, Senior Vice President and General manager, National Insurance, West Division, Liberty Mutual Insurance. “It’s a very dynamic industry with new opportunities every day.”

Advancements in technology are changing the game in terms of capabilities, efficiency and agility.

“Automation and robotics enable smaller entities to produce at a smaller scale, which puts pressure on every player to become more efficient,” Hedrington said. But additional, less publicized

technology is also making a big impact. The Internet of Things, blockchain, and 3D printing, to name a few, are lowering barriers to entry and enabling companies to move into new markets more quickly.

Seth Hedrington, Senior Vice President and General Manager, National Insurance, West Division, Liberty Mutual Insurance

Thanks to these developments, technology is driving competition. However, its benefits are simultaneously counteracted by the challenge of keeping up with rapidly-changing consumer preferences, government regulation, and an ongoing labor shortage.

The result is an environment teeming with both opportunity and obstacles. “Manufacturers have to make changes to stay in the game, but that introduces new risks,” Hedrington said.

Here are five ways manufacturers are reacting to a newly competitive environment that may expose them to unforeseen risks:

1. Stretching an existing workforce to combat a shortage of qualified workers.

The inability to attract and retain workers remains a top challenge for manufacturers, in part because the nature of the skill set required is changing rapidly. Because technology plays such a significant role in front-line production processes, manufacturers need people who not only operate the machines, but also understand how they work.

“They need workers who are more adept with technology, and that’s harder to come by,” Hedrington said.

To increase capacity, companies are lengthening or adding shifts for their existing workforce, which increases the likelihood of fatigue and the risk of injury. While co-bots may reduce labor demands and mitigate safety risk over the long term, they too present short-term challenges.

“Introducing new machinery or even new workers creates unfamiliarity, and that initially increases safety risk,” Hedrington said.

These changes also have product liability implications. “When you extend shifts, you’re taxing the equipment as well as your workers,” Hedrington said. “That makes it more difficult to achieve a consistent level of product quality.”

Thanks to recent tariffs on key imports like aluminum and steel, raw materials are becoming more expensive. “Manufacturers are faced with some of the most extreme fluctuations in the cost of materials that we’ve seen in recent history,” Hedrington said.

To control costs, some companies are turning to suppliers from regions not impacted by the tariffs. But significant risks always accompany a change in trade relationships. Product defect liability is chief among them, but the risk of supply chain interruption is also an issue.

“If you’re working with alternate suppliers and relationships are not as established, the risk of interruption is greater,” Hedrington said. Failure to deliver products on time ultimately presents a reputational risk and threatens a manufacturer’s ability to keep their contracts.

Risk Management Steps:

Maintain relationships with previous suppliers.

Develop contingency plans and a network of backup suppliers.

Review contract language addressing liability for faulty materials.

3. Diversifying operations to become more nimble and fast-paced.

Technology makes it easier to stay connected anywhere in the world, and more manufacturers are taking advantage of that to open multiple locations across the U.S. and abroad.

“As companies start to feel pressured by the competitive environment, they’ll look for opportunities to manufacture in other parts of the world where regulatory hurdles and costs are smaller,” Hedrington said.

That, however, may increase exposure to intellectual property (IP) theft. While cyber breach happens everywhere, an international supply chain typically means a more expansive network, so the potential for infiltration and IP theft is greater. The ability to seek damages for IP theft occurring outside the U.S. can also be more challenging.

“A global network is a lot more difficult to manage—you need to regularly evaluate who has access, what they have access to, and make sure the access is secure,” Hedrington said. Limiting access to confidential information to specific groups or a specific location, like a U.S. headquarters, could help mitigate the exposure.

Risk Management Steps:

Add language to contracts that protect proprietary and IP rights.

Limit research and development to company headquarters.

Review internal IT protections.

4. Making facilities “smarter” to improve production and output.

More manufacturers are incorporating sensors and internet-enabled technology that allows machines to collect and share data and work together in an automated fashion. This ‘smart’ technology provides valuable insights into the efficiency of production processes.

“The risk associated with “smart” machinery is their interconnectivity,” Hedrington said. “Anytime you have that level of connectivity, you have an increased level of risk to cyber breach.” It’s also easier to make unintentional or unauthorized changes to product design and specifications or material thresholds, which could impact product quality and safety.

“Many manufacturers don’t perceive themselves as major targets for cyber-attack, but failing to appreciate and mitigate that exposure can result in significant losses. In addition to reviewing your internal IT safeguards, it’s critical to review your insurance options. If you’re not considering the benefits of insurance, that’s a significant missed opportunity to protect your business,” he said.

Risk Management Steps:

Update your cyber policy to include both first- and third-party coverage.

Manufacturers in a variety of consumer product segments, from razors and eyeglasses to mattresses and sneakers, are increasingly exploring direct to consumer models that cut out the middle man. While few manufacturers are abandoning their traditional distribution outlets all together, they are considering e-commerce and even brick-and mortar locations of their own.

In addition to increased efficiencies, this format allows manufacturers more control over the customer experience and a bigger share of the profits.

“Going direct-to-consumer is another way to beat out competitors,” Hedrington said. “Technology and the connectivity of everything has helped open up new distribution avenues.”

It also, however, confers liabilities to the manufacturer that the middle-men normally accept, such as product and safety liability for proper packaging and labeling, as well as other operational risks that come with running a storefront, including workers’ compensation, cyber, property and general liability exposures.

Risk Management Steps:

Don’t completely shut down traditional distribution channels.

Ensure you have the skills to manage operational risks of direct distribution.

Build a cross-functional team to build a thorough risk management plan.

Your Insurer’s Experience and Expertise Matter

Manufacturing represents one of the largest business segments that Liberty Mutual serves, and teams across the organization have specialized expertise in the unique challenges facing this evolving sector.

Liberty insures a wide variety of manufacturers, wants to write more, and has the products to address the industry’s specific exposures. The company can offer a holistic solution that includes core property & casualty, as well as cyber, D&O, and environmental lines through Ironshore, a Liberty Mutual company.

“Liberty Mutual is entrenched in the risk management practices of the manufacturing industry. Our risk control professionals participate in many boards and committees that create standards to improve equipment, product, and employee safety. Additionally, our Industry Solutions and Product Management teams have a deep understanding of the manufacturing industry and help customers stay ahead of emerging risks,” Hedrington said.

In addition, Liberty’s claims handlers have the experience, capabilities, and knowledge to deliver quality outcomes so manufacturers can rebound from losses as quickly as possible.

“Our commitment to this space manifests itself in many ways, and that will hold true as U.S. manufacturing continues to evolve,” Hedrington said.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

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